UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
COMMISSION FILE NUMBER 0-17060
WLR FOODS, INC.
(Exact name of Registrant as specified in its charter)
Virginia 54-1295923
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
P.O. Box 7000
Broadway, Virginia 22815
(Address including Zip Code of Registrant's
principal executive offices)
(540) 896-7001
(Registrant's telephone number, including area code)
Indicate by cross mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes (X) No ()
The number of shares outstanding of Registrant's Common Stock, no par
value, at November 8, 1995 was 17,583,835 shares.
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
WLR FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited) Thirteen Weeks Ended
In thousands, except per share data September 30, October 1,
1995 1994
Net sales $250,798 $210,285
Cost of sales 215,811 178,176
------- -------
Gross profit 34,987 32,109
Selling, general and administrative expenses 26,040 20,286
------- -------
Operating income 8,947 11,823
Other expense:
Interest expense 2,085 1,330
Miscellaneous expense (income) (141) (112)
------- -------
Other expense 1,944 1,218
------- -------
Earnings before income taxes and minority interest 7,003 10,605
Income tax expense 2,691 4,083
Minority interest in net earnings of
consolidated subsidiary 16 14
------- -------
NET EARNINGS $4,296 $6,508
====== ======
NET EARNINGS PER COMMON SHARE $0.25 $0.38
AVERAGE COMMON SHARES OUTSTANDING 17,235 17,160
DIVIDENDS DECLARED PER COMMON SHARE $0.06 $0.05
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE>
WLR FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In thousands
September July 1,
30, 1995
1995
ASSETS (unaudited)
Current assets
Cash and cash equivalents $383 $706
Accounts receivable, less allowance for
doubtful accounts of $613 and $613. 70,455 63,194
Inventories (Note 2) 126,135 125,849
Other current assets 1,533 3,183
-------- --------
Total current assets 198,506 192,932
Investments 926 949
Property, plant and equipment, net 186,881 174,163
Other assets 5,619 4,481
-------- --------
TOTAL ASSETS $391,932 $372,525
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable to banks $7,300 -
Current maturities of long-term debt 8,053 8,028
Excess checks over bank balances 15,023 3,948
Trade accounts payable 31,016 28,021
Accrued expenses 18,336 22,036
Federal and state income taxes 2,228 -
Deferred income taxes 9,424 9,299
Other current liabilities 1,033 1,038
-------- --------
Total current liabilities 92,413 72,370
Long-term debt, excluding current maturities 97,259 106,481
Deferred income taxes 10,080 8,730
Minority interest in consolidated subsidiary 543 527
Other liabilities and deferred credits 3,324 3,323
Common stock subject to repurchase 17,750 17,750
Shareholders' equity :
Common stock, no par value. Outstanding
17,605 and 17,298 60,761 56,782
Additional paid-in capital 2,992 3,014
Retained earnings 106,810 103,548
--------- --------
Total shareholders' equity 170,563 163,344
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $391,932 $372,525
======== ========
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
WLR FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) Thirteen Weeks Ended
Dollars in thousands September 30 October 1,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $4,296 $6,508
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 6,631 5,611
Gain on sale of property, plant and equipment (26) (1)
Deferred income taxes 125 899
Other, net 102 172
Change in operating assets and liabilities: (net of
acquired assets)
(Increase) decrease in accounts receivable (7,106) 446
(Increase) decrease in inventories 2,578 (4,569)
Decrease in other current assets 1,817 733
Increase (decrease) in accounts payable 2,327 (90)
Increase (decrease) in accrued expenses and
other (1,471) 1,505
------ ------
Net cash provided by operating activities 9,273 11,214
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (5,856) (3,715)
Cash used in acquisition, (including costs) (10,535) (43,921)
Proceeds from sales of property, plant and
equipment 46 9
(Investments in) disposals of other assets 63 (68)
Minority interest in net earnings of
consolidated subsidiary 16 14
-------- --------
Net cash used in investing activities (16,266) (47,681)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (9,197) (205)
Proceeds from long-term debt - 25,000
Notes payable to banks (net of principal payments) 7,300 11,300
Increase in checks drawn not presented 11,075 1,312
Issuance of common stock 259 87
Repurchase of common stock (1,733) -
Dividends paid (1,034) (881)
------- -----
Net cash provided by financing activities 6,670 36,613
------- ------
Increase (decrease) in cash and cash equivalents (323) 146
4
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Cash and cash equivalents at beginning of
fiscal year 706 771
----- -----
Cash and cash equivalents at end of period $383 $917
==== ====
Supplemental cash flow information:
Cash paid (refunded) for :
Interest $1,140 $530
Income taxes (1,494) 498
The Company considers all highly liquid investments of maturity of
3 months or less at purchase to be cash equivalents.
Non cash transactions:
The Company issued 411,216 shares of common stock valued
at $5.4 million, for the acquisition of New Hope Feeds, Inc. on September 29,
1995. (Note 3)
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
Notes to Consolidated Financial Statements
WLR Foods, Inc. and Subsidiaries
1. Accounting Policies
The consolidated financial statements presented herein, include the
accounts of WLR Foods, Inc. and its wholly-owned and majority-owned
subsidiaries. All material balances have been eliminated in
consolidation. The consolidated balance sheet as of September 30,
1995, and the consolidated statements of earnings and cash flows for
the thirteen weeks ended September 30, 1995 and October 1, 1994 are
unaudited. In the opinion of management, all adjustments necessary for
fair presentation of such consolidated financial statements have been
included. Such adjustments consisted only of normal recurring
accruals and the use of estimates. Interim results are not
necessarily indicative of results for the entire fiscal year.
The consolidated financial statements and notes are presented as
permitted by Form 10-Q and do not contain certain information included
in the Company's annual consolidated financial statements and notes.
The Company's unaudited interim consolidated financial statements
should be read in conjunction with the consolidated financial
statements included in the Annual Report to Shareholders for the fiscal
year ended July 1, 1995. In both, the accounting policies and
principles used are consistant in all material respects. Certain
fiscal 1995 amounts have been reclassified to conform with fiscal 1996
presentations.
2. Inventories
A summary of inventories at September 30, 1995 and July 1, 1995
follows:
(unaudited)
Dollars in thousands September 30, July 1,
1995 1995
Live poultry and breeder flocks $58,523 $54,487
Processed poultry and meat products 36,683 41,262
Packaging supplies, parts and other 19,761 19,704
Feed, grain and eggs 11,168 10,396
-------- --------
Total inventories $126,135 $125,849
======== ========
3. Acquisition of New Hope Feeds, Inc. and an affiliated company.
On September 29, 1995, the Company acquired the chicken processing and
production assets of New Hope Feeds, Inc. and an affiliated company
for $10.5 million in cash and 411,216 shares of common stock valued at
$5.4 million. The acquisition was accounted for as a purchase, and,
accordingly, the assets of New Hope Feeds are included in the
6
<PAGE>
Company's consolidated financial statements as of the acquisition
date. The purchase price is subject to post-closing audit adjustments.
The transaction was recorded at the fair value of assets acquired and
liabilities assumed as follows:
Dollars in thousands
(unaudited)
Inventories $2,864
Other current assets 283
Property, plant and equipment 13,552
Other assets 1,279
------
Total assets acquired 17,978
Cash paid ( including costs) 10,535
Issuance of common stock 5,425
------
Total liabilities assumed $2,018
======
Due to the immaterial size of the New Hope Feeds, Inc. historical
operation, relative to WLR Foods historical results, proforma comparisons
are not provided.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
WLR Foods, Inc. (the Company)is a fully-integrated poultry production,
processing and marketing business with operations in Virginia, West
Virginia, Pennsylvania and North Carolina. On September 29, 1995, the
Company acquired assets of New Hope Feeds, Inc. and an affiliated
company for $10.5 million in cash and 411,216 shares of stock valued
at $5.4 million. The purchase agreement provided for the issuance of
additional shares of stock if required by a post closing audit. The
acquisition has been accounted for as a purchase, and therefore, is
reflected in the consolidated financial statements of the Company as
of the date of the acquisition.
The Board has authorized management to repurchase up to $30 million of
the Company's common stock. Through October 1995, the Company has
repurchased 1.2 million shares for $18.4 million and management
anticipates continuing the program through the fiscal year, as market
conditions allow.
On September 22, 1995, a three judge panel of the United States Court
of Appeals for the Fourth Circuit unanimously upheld the ruling of the
United States District Court in favor of WLR Foods, on Tyson Foods'
challenge to Virginia's anti-take over statutes. Tyson Foods has until
December 23, 1995, to appeal the ruling to the United States Supreme
Court.
8
<PAGE>
Results of Operations
The table of Changes in Results of Operations shows dollars and
percentage changes in the components of operating results over the
past thirteen weeks compared to the corresponding period in fiscal
1995.
Changes in Results of Operations Thirteen Weeks Ended
Sept. 30, 1995 vs. Oct. 1, 1994
In millions, except earnings $ Increase %Change
per share (Decrease)
Net sales $40.5 19.3%
Cost of sales 37.6 21.1
----- ----
Gross profit 2.9 9.0
Selling, general and administrative
expenses 5.8 28.4
----- ----
Operating profit (2.9) (24.3)
Other expense, net .7 59.6
Earnings before income taxes and ----- ----
minority interest (3.6) (34.0)
Income tax expense and minority
interest (1.4) (33.9)
----- ----
Net earnings ($2.2) (34.0)
===== ====
Net earnings per common share ($0.13) (34.2)
===== ====
For the periods indicated, the following table sets forth
selected information from the Company's Consolidated Statements of
Earnings expressed as a percentage of sales.
Operations as a Percentage of Thirteen Weeks Ended
Net Sales Sept. 30, 1995 vs. Oct. 1, 1994
Net sales 100.0% 100.0%
Cost of sales 86.0 84.7
----- -----
Gross profit 14.0 15.3
Selling, general and
administrative expenses 10.4 9.6
----- -----
Operating profit 3.6 5.7
Other expense, net .8 .6
Earnings before income taxes and ----- -----
minority interest 2.8 5.1
Income tax expense and minority
interest 1.1 2.0
----- -----
Net Earnings 1.7% 3.1%
===== =====
9
<PAGE>
Results of operations
Net sales increased $40.5 million or 19.3% due to higher volumes sold.
Sales volumes were up 15.6% reflecting the incremental sales generated
from the North Carolina turkey operation this year compared to last
year. Export sales increased 26% over the same period last year.
Chicken sales were up 7%, with volumes up 2% and average quoted
commodity prices up 9% over the same period last year. Turkey sales
were up 27%, due to volume increases of over 33%. Average quoted
commodity whole turkey prices were up 2%, while boneless skinless
breast meat was up 16% and boneless skinless thighmeat was down 20%
compared to the same period last year. Lower prices for the thighmeat
and other dark meat products impacted the overall performance of the
turkey division for the quarter.
Cost of sales increased $37.6 million, largely due to higher volumes
sold. In September 1995, management announced the elimination of the
second shift at the Marshville, North Carolina turkey processing
plant. The production level will remain unchanged,while the facility
will operate with one less shift, generating anticipated pre-tax
annual savings of $3.2 million. Grain prices averaged 3.6% higher than
the same period last year, with the full impact of the higher grain
costs expected in the second and third quarters of fiscal 1996.
Currently, grain prices are nearly 40% higher than for the same period
last year. At the present time, the Company does not have any
commitments to purchase grain at fixed prices beyond normal terms and
there are currently no hedging contracts outstanding.
Gross profits increased $2.9 million but the percent of gross profit
decreased to 14% compared to 15.3% last year. Gross margin was
impacted by disease in the North Carolina turkey operation, which
decreased the number and weight of turkeys slaughtered. Management
estimates the disease decreased gross margin by approximately $3.1
million in the current quarter, with an additional decrease of $2.5
million expected in the second quarter of this fiscal year.
The Company adopted bio-security measures and management practices,
which together with a new drug just made available, should help better
avoid or control the North Carolina disease.
Selling, general and administrative expenses increased $5.8 million
due to higher sales volumes and increased delivery and selling costs.
The growth in export sales volumes over the same period last year
increased delivery costs. Additionally, costs of the North Carolina
operation were included for the full quarter this year compared to
only 5 weeks for last year. With additional foodservice sales,
promotional costs increased. Selling expenses increased $3.1 million,
while delivery costs were up $2.6 million. Advertising costs increased
$0.4 million as the Company continues to support its overall marketing
plan. Total administrative costs were down $0.3 million, however,
excluding $1.0 million in hostile defense take-over costs from last
year, administrative costs were up $0.7 million as a result of the
August 1994 acquisition of the North Carolina turkey division.
The Company has adopted a new approach to logistics to better utilize
the refrigeration, warehousing and transportation resources. With a
new management position in place, Vice
10
<PAGE>
President of Corporate Logistics, programs and policies are being developed
with goals of saving the Company $2 to $3 million per year.
Operating profits were down $2.9 million due to higher incremental
selling and delivery costs along with lower gross margin levels.
Other expense, primarily interest, was up $0.7 million, due to higher
levels of borrowing for the North Carolina turkey acquisition and
repurchase of the Company's common stock.
Net income decreased $2.2 million. Strong performances in chicken and
the Cassco operations were not enough to offset the losses generated
in the turkey operation.
Financial Condition and Liquidity
WLR Foods closed the first quarter of fiscal 1996 with a strong
balance sheet. Working capital was $106.1 million, down from $120.6
million at July 1, 1995, due to changes in borrowing levels between
short-term and long-term facilities. The current ratio remains strong
at 2.1-to-1. Total assets increased to $391.9 million, reflecting the
New Hope Feeds acquisition. The ratio of total debt to total capital,
including common stock subject to repurchase as debt, was 43.3%. The
Company's book value per common share was $10.70 as of September 30,
1995.
Capital Resources
Management expects the current $110 million revolving credit
facilities will be adequate to meet operational needs, stock
repurchases, debt service, dividends and acquisitions for the
foreseeable future. As of September 30, 1995, the Company has $60.7
million available on revolving credit facilities.
Capital spending for fiscal 1996 is projected at $30 million,
including approximately $5 million for a new hatchery at the Goldsboro
chicken complex. Normal replacements and upgrades of equipment and
facilities are expected to remain at $23 million, with the remaining
$2 million committed for information system upgrades and enhancements.
Plans are moving ahead with the construction of a Cassco ice
manufacturing facility in Richmond, Virginia. Management is currently
evaluating off-balance sheet leasing options for up to $5 million of
expenditures during fiscal 1996. Depreciation and amortization are
projected at $27 million, including the added depreciation from the
Goldsboro chicken operation.
Capital spending for the first quarter was $5.9 million, all of which
was for normal replacements and upgrades of existing equipment and
facilities. Depreciation expense was $6.6 million, along with $0.2
million in amortization expense for the quarter.
The Board of Directors declared a $0.06 per share dividend payable on
November 3, 1995 to shareholders of record as of October 13, 1995.
11
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on October 28,
1995 at 10:00 a.m. in Bridgewater, Virginia. The voting results were
as follows:
______________________________________________________________________
Votes
Broker
Proposal For Against Withheld Abstention Non-Votes
______________________________________________________________________
#1 Election of
Class B Directors
(to serve until 1998
Annual Meeting
of Shareholders)
Stephen W. Custer 13,266,440 330,538
Calvin G. Germroth 13,249,987 346,991
James L. Keeler 13,295,779 301,199
#2 Ratification of
Appointment of
Independent
Auditor 13,429,909 105,525 65,544
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Form 8-K
Reporting Date September 29, 1995. Item Reported -
Item 5, Other Events. WLR Foods, Inc. reported the purchase of the
chicken processing and production assets of New Hope Feeds, Inc. and
its affiliate of New Hope, North Carolina for a purchase price of $18
million.
Reporting Date August 22, 1995. Item Reported - Item
5, Other Events. WLR Foods, Inc. reported the signing of an agreement
to acquire the chicken processing plant,
12
<PAGE>
live production assets and inventories of New Hope Feeds, Inc. and Economy
Truck Leasing, Inc., both of New Hope, North Carolina.
13
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report is signed this 9th day of November, 1995, by the
Registrant's principal financial officer who is also authorized by the
Registrant to sign on its behalf.
WLR FOODS, INC.
___/s/ Delbert L. Seitz____________
Delbert L. Seitz, Chief Financial
Officer and duly authorized signator
for Registrant
14
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule
15
<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-29-1996
<PERIOD-END> SEP-30-1995
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<ALLOWANCES> 613
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0
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<OTHER-SE> 109,802
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